No recap extension or term changes for banks

No changes will be made to the original terms and timetable of the bank recapitalization process upon the insistence of the government and its international creditors, despite the credit sector’s demand for an extension at the very least.

According to the plan, everything will have to be in place by the end of April, which means that the banks will have to schedule extraordinary general meetings to issue the decisions about the terms of the share capital increases, the Capital Market Commission will have to be fully informed, and the period for the exercise of shareholders’ right must be determined.

Government sources say that only after banks have completed all necessary actions might there be an extension of a few weeks given for the exercise of rights, possibly till the end of May. This would be a purely informal extension that changes nothing of the plan agreed.

After all, for the timetable or the terms of the recapitalization to change, it would take an amendment to the bailout agreement that Athens has signed with its creditors, which is ruled out as a matter of principle. According to the timetable, the banks should have decided on the amount of funds they would draw through contingent convertible bonds (CoCos) by the end of January, and will have to complete their share capital increases by end-April.

It now appears that the widespread feeling that changes could be made to the terms and the timetable was unfounded. Last week the Hellenic Financial Stability Fund (HFSF) and the Bank of Greece sent letters to the chiefs of the main banks asking them to speed up their procedures for the completion of the capital increases as planned.

Lenders had wanted the terms to change so that the whole project would become more attractive to bank shareholders. Now the project will have particularly unfavorable terms for current bank stakeholders who are running the risk of losing any chance to recover even a part of the losses they are incurring.

Bank officials say that their 2012 financial results will be published during March, and the invitations for the general meetings that will decide the exact terms of the capital increases will be sent out immediately.

According to the recapitalization law, for current shareholders to retain overall control of the banks, they will have to contribute at least 10 percent of the capital required in order to obtain the right to repay the remaining 90 percent that the HFSF will cover and regain control. Any banks whose owners eventually fail to cover that 10 percent will irrevocably come under HFSF control and the shares of old shareholders will effectively be nullified.

The banks had repeatedly asked for the postponement of the share capital increases by at least three months, as well as for a series of technical amendments that would either offer more incentives to private investors, such as a higher potential yield or reducing the risk they are being asked to shoulder, for instance by the size of negative net positions. On a group level, National Bank has a negative net position of 2.6 billion euros, Eurobank Ergasias is at minus 400 million and Piraeus at minus 2.39 billion. Alpha is in a much stronger position, at the positive level of 891.6 million euros.

Alpha and Piraeus have decided to issue CoCos of 2 billion euros each, while National and Eurobank, currently engaged in their planned merger, have made no such decision as yet. It is their merger that has been one of their strongest arguments in favor of a postponement to the recapitalization process.

Subscribe to our Newsletters

Enter your information below to receive our weekly newsletters with the latest insights, opinion pieces and current events straight to your inbox.

By signing up you are agreeing to our Terms of Service and Privacy Policy.